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FC Insights | May 2021
Webinar Review - China + SEA | The Era of Cross-Border E-Commerce
Speakers:- Mr. Bill Wang, Co-Founder at desty (Former Dir. of Ops at Alibaba Group)- Ms. Ngoc Nguyen (Noah), SEA Investment at eWTP Capital- Mr. Sam Yang, Global Partnership & Investment at JD.com- Ms. Tania Shanny Lestari, Investment at Openspace Ventures
Moderator:- Ms. Brigitta Vanya Sai Edgina (Gina), Investment Banking at Favour Capital
Moderator:- Ms. Brigitta Vanya Sai Edgina (Gina), Investment Banking at Favour Capital
Backdrop:
Google, Bain, and Temasek projected that the SEA e-commerce market is expected to grow at 23% CAGR, achieving US$172 billion by 2025. For cross-border e-commerce, the advancement of technology opened access for entrepreneurs to get the best materials from the best sources and help them market their products to the most attractive market in the world.
Broad Topics:1. Opportunities of cross-border e-commerce2. Business models of cross-border e-commerce companies and business model of cross-border e-commerce enabler3. Live-streaming and social commerce in cross-border transaction4. Supply chain challenges of cross-border e-commerce5. Effect of the geopolitical environment in China and ASEAN on cross-border activities6. The funding environment for cross-border e-commerce enabler startups
Below: Webinar Highlights
01. How has cross-border e-commerce advanced compared to a decade ago?
Tania: Compared to a decade ago, cross-border e-commerce has flourished if we look at them from two perspectives. First, from the infrastructure perspective, more free-trade agreements supported by governments in Indonesia and other countries have facilitated transactions to become much more integrated and seamless. Second, in relation to population, there is a rise in consumption behavior driving competition amongst sellers. They try to deliver even cheaper products boosting the value of transactions in e-commerce. With growing transaction numbers, e-commerce is also adding value to the total wealth of each country. From our (Openspace Venture) perspective, technologies have been implemented as a way to help e-commerce processes to be more efficient. The implementation of digital payment and technology in logistics supports sellers and enables them to make the process more efficient, therefore driving the price down. So, all in all, there are huge differences compared to a decade ago and I wouldn't say we're in a developed stage yet.
Bill: To me, cross-border e-commerce is already in a mature rather than early stage. The e-commerce competition landscape has changed drastically owing to the improvement of supply chains, thus impacting product sales prices. Specifically, the price competition between suppliers becomes more severe. Therefore, different from the last decade, the price competition might not bring many advantages to sellers. To tackle this, sellers are suggested to find solutions that can help boost their products' uniqueness to gain competitive advantages other than pricing.
Noah: The increasing free-trade agreements(FTA) between nations, higher internet penetration rate, more efficient logistic and digital adoption amongst countries have contributed to the rise of cross-border e-commerce today. In Vietnam, the government encourages firms to accelerate the digitization process so as to ease the process of joining the global cross-border marketplace.
02. ASEAN became China's largest trading partner with a trading volume of US$731 billion in 2020. The trade volume of cross-border e-commerce climbed 31%, reaching US$261 billion in 2020. How can SMEs or small/medium brands in Southeast Asia tap this opportunity and access the market?
Noah: SEA is indeed a market with huge potential. However, this also means that the competitive landscape would grow proportionally to the market size. Therefore, it is essential for SMEs in SEA to maintain their competitive advantages such as product or service quality and supply chain management so that they can improve their operations and compete with competitors from different markets.
03. JD and Visa, the world's leader in digital payment have signed an agreement to deepen cooperation in cross-border e-commerce. Can you tell us what's the background of this partnership and what kind of opportunities can sellers expect to gain from this?
Sam: At the moment, payment methods in SEA countries are mostly COD – cash on delivery. Therefore, it can be said that digital payments are still in a very early stage for this region. Payment systems can be considered as a huge pain point from the cross-border e-commerce sellers’ perspective. Whereas VISA is known to be a very open ecosystem where we can learn from the western part of the world. Therefore, this partnership’s main goal is to facilitate our cross-border merchants to have more seamless payment processes when they sell in global marketplaces.
04. Talking about technology, there have been lots of e-commerce enabler startups in the region. How can technology players innovate and what strategies do they need to pursue to provide access to SMEs and sellers in Southeast Asia to tap into this growing market?
Bill: Traditionally, investments usually go into the infrastructure parts of a company such as payment or logistic systems. Now we are seeing more store website builder companies, ERP, and data analysis companies emerging in the market. These are very typical business models in the e-commerce enabler domain. Particularly in SEA, the companies are very decentralized. We have multiple marketplaces and multiple social media channels. There are also multiple e-wallet solutions that can be difficult to maintain for individual sellers. Hence, a company that can provide ERP solutions is required for sellers to handle this omnichannel situation.
05. From a VC perspective in the cross-border enabler vertical, what solutions should startups bring to the table and who will have the most opportunities in the future?
Tania: For Indonesia, most of the startups are micro players, small in size and they want to tap into the digitalization or technological processes. Despite the lengthy process required to adapt to new technologies and become more digital, the opportunities for businesses striving to become more “modern” are still large, as long as they are able to utilize every technology aspect into their operation model; for instance, something like digital payment. For these startups, since technology adoption is an arduous process, any company that actually invests money to learn and become more digital would stand out in the eyes of the investors. But for now, it is extremely rare to find companies that follow this path. Noah: I believe SEA companies possess huge advantages in this field. For instance, numerous firms in Vietnam or SEA regions stated they use advanced software to drive upgrades to their commercial functions. However, since data from individual software is likely to be dissimilar, the SMEs operating in multiple countries tend to face difficulties combining all of the data into the same format or platform. Therefore, tools or solutions that help manage and decrypt these data efficiently can bring huge competitive advantages to any SMEs. Eventually, multichannel management systems should be a key focus area since it is able to increase the firm's operation more efficiently.
06. Will there be one big player who can provide solutions on ERP, data, logistics, and payment or will each sub-vertical be dominated by independent players?
Noah: To me, there will be big players for each vertical, because so far, even in the developed markets, there are no observations for any software company that can do logistics and other verticals. Different companies are expected to have their expertise in a specific vertical at the very least and all those sub-verticals cannot be combined in one company.
07. In cross-border e-commerce, what strategies or innovation should sellers pursue to utilize the supply chain management?
Bill: For Chinese cross-border sellers, there are two supply chain options: direct to customers(D2C) or partner with local merchants. Currently, the second option is experiencing a growth trajectory. In fact, in a cross-border marketplace, supply merchants tend to look for local partners to help sell and distribute their products locally. In reality, it is true to state that local merchants are better at understanding their market. Therefore, based on this, it is rational to note that any merchants entering the SEA market might face the same issue - lack of understanding of the local market especially since SEA could be considered as a tough market with different languages, religions, and consumer behaviors. Furthermore, it is also suggested that the partnership models with local partners should be considered carefully based on the local demand, product selection, and local economic system.
08. Will there be any trends for partnership between local and cross-border merchants?
Sam: There are actual rising demands for cross-border merchants to learn the insights from local markets in which they want to penetrate. Some insights such as customers and market characteristics are important for cross-border merchants to understand. Fortunately, the local merchants are the ones who possess their market insights. Therefore, the collaboration trend would be increasing as they bring value to both players.
09. Livestreaming has helped in building brand awareness and relationships between sellers and buyers in China. Can SEA experience the same growth trajectory?
Tania: To my observation, there is still no accurate evidence that SEA has followed the path of the livestreaming model from China. Though it can be seen that small traction has been recorded in this region; specifically, in the Philippines where sellers have started to provide light content live-streaming. It is in China, that we witness the success of livestreaming and its positive influences on group buying as a result of extremely strong payment systems. On the contrary, such similar payment systems are not that “digital” and seamless in SEA countries, for example, Indonesia. Therefore, SEA still has much to learn from China to eventually and probably succeed in the same growth trajectory.
10. In conclusion, what are the key trends and development moving forward into the future?
Noah: From my perspective, I think the technology trend will continue for cross-border e-commerce. There will be more cross-border players in every technological field and another aspect will be logistics. Technology developments will optimize supply chains, which are extremely vital for cross-border e-commerce in the future.
Bill: According to what happened in China, many SEA business opportunities will grow and they include logistics, e-wallet, and supply chains. Moreover, I also believe SEA can develop its own e-commerce ecosystem. Although the growth process may not be 100% the same as China’s model, it will gradually follow a similar pathway.
Tania: In my perspective, technology will be a great boost to e-commerce providers in SEA. For instance, almost every startup is continuously looking to grow in their respective countries. Therefore, we are going to see more businesses grow in that country first before they start exploring more on expansion. Even though there are free-trade agreements(FTA) being developed, it is still at the inception phase and the implementation of these FTAs is still early and requires more time to develop. Nevertheless, as the cross-border e-commerce era continues to grow, it is undeniable that there will be numerous firms in the logistics sector that will benefit by simply being more “digitized”.
Sam: There will be more tech startups adopting new forms of technologies in the retail markets and we will see more e-commerce platforms getting bigger and more established.
Tania: Compared to a decade ago, cross-border e-commerce has flourished if we look at them from two perspectives. First, from the infrastructure perspective, more free-trade agreements supported by governments in Indonesia and other countries have facilitated transactions to become much more integrated and seamless. Second, in relation to population, there is a rise in consumption behavior driving competition amongst sellers. They try to deliver even cheaper products boosting the value of transactions in e-commerce. With growing transaction numbers, e-commerce is also adding value to the total wealth of each country. From our (Openspace Venture) perspective, technologies have been implemented as a way to help e-commerce processes to be more efficient. The implementation of digital payment and technology in logistics supports sellers and enables them to make the process more efficient, therefore driving the price down. So, all in all, there are huge differences compared to a decade ago and I wouldn't say we're in a developed stage yet.
Bill: To me, cross-border e-commerce is already in a mature rather than early stage. The e-commerce competition landscape has changed drastically owing to the improvement of supply chains, thus impacting product sales prices. Specifically, the price competition between suppliers becomes more severe. Therefore, different from the last decade, the price competition might not bring many advantages to sellers. To tackle this, sellers are suggested to find solutions that can help boost their products' uniqueness to gain competitive advantages other than pricing.
Noah: The increasing free-trade agreements(FTA) between nations, higher internet penetration rate, more efficient logistic and digital adoption amongst countries have contributed to the rise of cross-border e-commerce today. In Vietnam, the government encourages firms to accelerate the digitization process so as to ease the process of joining the global cross-border marketplace.
02. ASEAN became China's largest trading partner with a trading volume of US$731 billion in 2020. The trade volume of cross-border e-commerce climbed 31%, reaching US$261 billion in 2020. How can SMEs or small/medium brands in Southeast Asia tap this opportunity and access the market?
Noah: SEA is indeed a market with huge potential. However, this also means that the competitive landscape would grow proportionally to the market size. Therefore, it is essential for SMEs in SEA to maintain their competitive advantages such as product or service quality and supply chain management so that they can improve their operations and compete with competitors from different markets.
03. JD and Visa, the world's leader in digital payment have signed an agreement to deepen cooperation in cross-border e-commerce. Can you tell us what's the background of this partnership and what kind of opportunities can sellers expect to gain from this?
Sam: At the moment, payment methods in SEA countries are mostly COD – cash on delivery. Therefore, it can be said that digital payments are still in a very early stage for this region. Payment systems can be considered as a huge pain point from the cross-border e-commerce sellers’ perspective. Whereas VISA is known to be a very open ecosystem where we can learn from the western part of the world. Therefore, this partnership’s main goal is to facilitate our cross-border merchants to have more seamless payment processes when they sell in global marketplaces.
04. Talking about technology, there have been lots of e-commerce enabler startups in the region. How can technology players innovate and what strategies do they need to pursue to provide access to SMEs and sellers in Southeast Asia to tap into this growing market?
Bill: Traditionally, investments usually go into the infrastructure parts of a company such as payment or logistic systems. Now we are seeing more store website builder companies, ERP, and data analysis companies emerging in the market. These are very typical business models in the e-commerce enabler domain. Particularly in SEA, the companies are very decentralized. We have multiple marketplaces and multiple social media channels. There are also multiple e-wallet solutions that can be difficult to maintain for individual sellers. Hence, a company that can provide ERP solutions is required for sellers to handle this omnichannel situation.
05. From a VC perspective in the cross-border enabler vertical, what solutions should startups bring to the table and who will have the most opportunities in the future?
Tania: For Indonesia, most of the startups are micro players, small in size and they want to tap into the digitalization or technological processes. Despite the lengthy process required to adapt to new technologies and become more digital, the opportunities for businesses striving to become more “modern” are still large, as long as they are able to utilize every technology aspect into their operation model; for instance, something like digital payment. For these startups, since technology adoption is an arduous process, any company that actually invests money to learn and become more digital would stand out in the eyes of the investors. But for now, it is extremely rare to find companies that follow this path. Noah: I believe SEA companies possess huge advantages in this field. For instance, numerous firms in Vietnam or SEA regions stated they use advanced software to drive upgrades to their commercial functions. However, since data from individual software is likely to be dissimilar, the SMEs operating in multiple countries tend to face difficulties combining all of the data into the same format or platform. Therefore, tools or solutions that help manage and decrypt these data efficiently can bring huge competitive advantages to any SMEs. Eventually, multichannel management systems should be a key focus area since it is able to increase the firm's operation more efficiently.
06. Will there be one big player who can provide solutions on ERP, data, logistics, and payment or will each sub-vertical be dominated by independent players?
Noah: To me, there will be big players for each vertical, because so far, even in the developed markets, there are no observations for any software company that can do logistics and other verticals. Different companies are expected to have their expertise in a specific vertical at the very least and all those sub-verticals cannot be combined in one company.
07. In cross-border e-commerce, what strategies or innovation should sellers pursue to utilize the supply chain management?
Bill: For Chinese cross-border sellers, there are two supply chain options: direct to customers(D2C) or partner with local merchants. Currently, the second option is experiencing a growth trajectory. In fact, in a cross-border marketplace, supply merchants tend to look for local partners to help sell and distribute their products locally. In reality, it is true to state that local merchants are better at understanding their market. Therefore, based on this, it is rational to note that any merchants entering the SEA market might face the same issue - lack of understanding of the local market especially since SEA could be considered as a tough market with different languages, religions, and consumer behaviors. Furthermore, it is also suggested that the partnership models with local partners should be considered carefully based on the local demand, product selection, and local economic system.
08. Will there be any trends for partnership between local and cross-border merchants?
Sam: There are actual rising demands for cross-border merchants to learn the insights from local markets in which they want to penetrate. Some insights such as customers and market characteristics are important for cross-border merchants to understand. Fortunately, the local merchants are the ones who possess their market insights. Therefore, the collaboration trend would be increasing as they bring value to both players.
09. Livestreaming has helped in building brand awareness and relationships between sellers and buyers in China. Can SEA experience the same growth trajectory?
Tania: To my observation, there is still no accurate evidence that SEA has followed the path of the livestreaming model from China. Though it can be seen that small traction has been recorded in this region; specifically, in the Philippines where sellers have started to provide light content live-streaming. It is in China, that we witness the success of livestreaming and its positive influences on group buying as a result of extremely strong payment systems. On the contrary, such similar payment systems are not that “digital” and seamless in SEA countries, for example, Indonesia. Therefore, SEA still has much to learn from China to eventually and probably succeed in the same growth trajectory.
10. In conclusion, what are the key trends and development moving forward into the future?
Noah: From my perspective, I think the technology trend will continue for cross-border e-commerce. There will be more cross-border players in every technological field and another aspect will be logistics. Technology developments will optimize supply chains, which are extremely vital for cross-border e-commerce in the future.
Bill: According to what happened in China, many SEA business opportunities will grow and they include logistics, e-wallet, and supply chains. Moreover, I also believe SEA can develop its own e-commerce ecosystem. Although the growth process may not be 100% the same as China’s model, it will gradually follow a similar pathway.
Tania: In my perspective, technology will be a great boost to e-commerce providers in SEA. For instance, almost every startup is continuously looking to grow in their respective countries. Therefore, we are going to see more businesses grow in that country first before they start exploring more on expansion. Even though there are free-trade agreements(FTA) being developed, it is still at the inception phase and the implementation of these FTAs is still early and requires more time to develop. Nevertheless, as the cross-border e-commerce era continues to grow, it is undeniable that there will be numerous firms in the logistics sector that will benefit by simply being more “digitized”.
Sam: There will be more tech startups adopting new forms of technologies in the retail markets and we will see more e-commerce platforms getting bigger and more established.
Disclaimer:This report only expresses the views of Favour Capital, which does not offer any investment advice. If you would like to further discuss any of the information mentioned above, please feel free to contact us via admin.sea@favour-capital.com